Mayfair, that toney part of central London nestled amidst Buckingham Palace and Hyde Park, is one of the most famous pieces of real estate in the world. Sleek, aristocratic and rich, it has a storied history. The great nineteenth century novels about the lives of England’s ruling class took place there, and the super-affluent who set today’s more multicultural ethos now call it home.
Marc Faber, the famous economic scold and skeptic who predicted the 1987 stock market crash, has adopted “the Mayfair economy” as his metaphor for the Federal Reserve’s latest round of quantitative easing, dubbed QE3. Faber asserts that this policy is not benefiting the broad public that it is supposed to help, but rather the richest part of society, the very crème de la crème, whose wealth is held in financial assets.
He points out the paradox (the scandal, really), in an interview on CNBC
This unlimited QE, buying mortgage-backed securities (MBS) and continuing Operation Twist, has the implication of simply having asset prices go up and the money flows down to the Mayfair economy.
QE helps rich people whose asset prices go up and whose net worth then increases but it doesn’t flow to the man on the street who is faced with higher costs of living with price rises. You just have a small economy that is booming but the majority of the economy is damaged by QE.
It’s hard to argue with his point. As measured by the major stock market indices, four years of quantitative easing have restored the markets to their pre-2008 crash levels. But the deeper symptoms of economic malaise- stagnant growth and high, prolonged unemployment- persist with little improvement in sight. Likewise, the federal government’s stimulus activities and regulatory excesses have yielded little in terms of practical results.
Paradoxically, it is the fabled “One Per Cent” who may be the biggest beneficiaries from progressive efforts to manage the economy.
Photo credit: Dick Bauch via Wikipedia